Stock market regulator SEBI should discard the existing IPO process and totally revamp the procedure if retail participation is to be increased, according to Mr Prithvi Haldea, Chairman and Managing Director, Prime Database.

Mr Haldea has been instrumental in creating and operating a database of over 30,000 market issuances.

Speaking to Business Line, Mr. Haldea felt it was time for SEBI to stop trying to plug loopholes and tinker with the existing regulation.

What are the important issues that need to be addressed in initial public offerings?

There are three issues. First, the confidence of the Indian investor has been shaken badly as he does not consider the stock market a place to invest his hard earned money. This is because the regulator's orders against market manipulators should serve as a deterrent. But, unfortunately they are not. And, SEBI does not seem to be using disgorgement of funds (refund of funds manipulated along with penal interest) the way it should be. As a result the stock market is getting increasingly dependent on foreign institutional investor flows.

The second issue is that increasing use of technology has started changing fund managers' mindsets from investing to trading, requiring instant results or returns from equities.

Nearly 75-80 per cent of the volume in the cash segment today is day trading and for many, taking delivery of scrip is long term.

Thirdly, SEBI should simplify cumbersome processes to increase retail participation in the IPO process, which it has already started.

What is your take on the just introduced institutional placement programme?

The programme is a short cut taken by the government to raise funds through PSU divestment. Instead of the taking the lead in increasing retail participation, the government has taken this route. The approach has ruined the whole objective of financial inclusion through PSU shares being subscribed to by every household as outlined in Congress manifesto of 2004.

The Government should start offering a larger portion of PSU issues only to retail participants and give discounts that could even be up to 40 per cent so that retail investors start looking at the market.

Market depth is a myth created by institutional investors and one only needs to look at the retail subscription figures of Reliance Power and Coal India to figure out the reality.

The Government should promote an ‘only retail policy' and not institutional placement policy.

What should the Government do to increase retail participation?

It must necessarily use the KYC of banks for roping in first-time investors. I had suggested the idea to the Government.

Any first time investor should be allowed to buy shares in an IPO by instructing his bank mentioning the quantity he wants. The bank can debit his account to buy the shares on his behalf and hold it under lien.

Banks could extend this to all who want to buy equity shares for the first time.

However, a customer can sell the shares only if he has a demat account for the transfer of the shares. He can sell the shares only by opening a trading account.

> raghavendrarao.k@thehindu.co.in

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